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Weak dollar contributes to $86 oil prices

14 April 2010

Oil prices climbed by nearly two per cent Wednesday (April 9) to settle at $85.84. Catalysts included a weaker dollar following a disappointing look at jobs and a surprising decline in oil supplies.

The overall outlook on the economy is better as retailers saw an increase in sales during March, but officials still believe a delayed improvement in jobs is likely. Unemployment currently sits at 9.7 per cent and the timeframe for improvement could be lengthy as employers are likely to let the recovery unfold before aggressively hiring.

Following the jobs outlook and the overall numbers on the economy Wednesday, the dollar suffered mightily against its major global competitors. The Euro climbed toward $1.37 and the British Pound was near $1.55 as New York currency trade ended Wednesday.

The weakness in the dollar helped in the strong rise in oil prices, but it was a surprisingly low number in the crude oil inventory report that really got speculative attention.

The Energy Information Administration delivered its weekly crude level report for the week that ended April 9th. It said oil supplies were down by 2.2 million barrels for the week, which was a dramatic adjustment from the 1.6 million barrel increase in inventory that had been forecast by the Platts survey.

This marked the first such weekly decline in oil inventory since January. Despite the results of last week, most experts still expect inventory levels to continue to grow as the summer vacation time hits. It appears as though increased gas consumption during the past week helped contribute to lower supply levels last week.

The dollar still appears to be on an upward trend in the medium and long-term as well, so it is likely that a higher valued dollar should help keep oil prices from carrying too much higher even though there is little major technical resistance in the way.

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